To start with, it is important to have a good understanding of what a foreclosure is. In basic terms, a foreclosure is a process whereby you lose possession of your home for non-payment.
The foreclosure process begins with the mortgage company that wants to regain control over the home to reduce their losses. Once a couple of payments are missed, the lender will send out notices and contact you to try to work things out. If an acceptable arrangement is not made, then the legal process begins.
Your mortgage company and their attorney are required to file a legal notice called a Notice of Election and Demand with the public trustee. Once this has happened, the trustee will provide you with a notice along with information on how to save your home, which is called a Right to Cure the Default. Once received, you are then required to respond with a Notice of Intent to Cure within seven days before the set sale date, which is between 45 and 60 days once the trustee receives the notice of foreclosure from the mortgage company. In addition, money due to bring the home out of foreclosure must be paid no later than noon the day before the sale.
If you choose not to take the home out of foreclosure, your option to cure is gone. However, this is when your Redemption Rights come into play. Depending on the state in which you live, your specific situation, and the type of property in foreclosure, the time in which you have to redeem the property will vary. Generally, it is anywhere from three to seven months. For more information, you can contact the Department of Urban Housing and Development (HUD) within your local area.
For the person looking to buy a foreclosed home, they can expect to save as much as 25% on the purchase price of what a normal home would cost. In addition, many homes are in great condition, needing little or no repair. However, in the majority of cases, there is some level of home repair required and the downfall is that with foreclosures, you cannot inspect the home prior to purchase.
If you are a first-time buyer, buying a foreclosed home may be a serious consideration since the down payment is low and the sellers are often very motivated.
If you are interested in buying foreclosed homes as investments, this can be a very profitable option. In most cases, someone will buy a foreclosed home, complete any repairs, and sell it quick. People that do this as a business find it to be quite lucrative.
No matter what your situation, knowing definitions of foreclosures will provide you with a strong negotiating tool. These are a few of the more commonly used terms:
This is a legal action taken by the lender against the homeowner. In order for the mortgage company to take control over the property, they use the court system to start the foreclosure process. The judicial foreclosure is different from state to state but the normal process is that a home goes up for foreclosure sale, it is auctioned off to the highest bidder, and then either the sale is complete or the homeowner exercises their redemption period to save their home.
A default constitutes when a homeowner fails to make their regular monthly mortgage payments. Typically, a loan would be considered in default after three to four months of non-payment.
This is when the lender sells a home in default. Almost all Deed of Trusts have a "power of sale" clause, which gives the trustee a right to a trustee sale. Again, this varies from state to state but typically, the home is advertised in a local or county paper providing the time, date, and location of the auction.
Condition of Title
The lender of a home is the senior lien holder and sometimes their goal is to sell the property to regain their losses. However, there are other instances when the lender is not interested in taking back the property. The condition of title allows you to determine how many liens are on the foreclosed property and what money is due and to whom.
If you have decided to purchase a foreclosed home, be sure to do as much in-depth research as possible. Although you might not be able to inspect the home, find out as much about the property as possible to save yourself from making a big mistake.
Keep in mind when bidding on a foreclosed home, any unrealistic bids will not even be considered. Work with some local banks to determine what an appropriate bid is, what kind of down payment you should expect, the current interest rate, and as much general information as you can.
Foreclosures and Real Estate Glossary